Selling Stock Options: Tax Implications for Taiwan Residents

Business Money
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This is a question I have. If you want to trade stocks in the US market, what tax implications are there for Taiwan for buying/selling, losses, and also selling option contracts?

I have heard that stock sales that generate profits are regarded as capital gains. Is that also true for selling premiums on option contracts?

For example: suppose I buy stock in Ford, and the price rises from $10 to $20 … wouldn’t that be $10 in profit taxable as capital gains. What happens if it goes from $10 to $5?

Also, suppose you option a trade for a contract of 100 units of Ford for (say) June 16th, 2023 and that generates $50 in premium for you at a strike of $10. How is that regarded if the stock is assigned and generates a trading loss?

I hope I’m asking the question in the right way. I’m not an expert trader by any means. Thanks!

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Then don’t trade options. You’ll go broke learning.

2 Likes
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Who’s up for some “loss porn?”

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Like selling Tesla right just exactly within days of their initial Skyrocketing takeoff?

Yeah sure, go ahead.

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No I mean like someone learning while using call options… https://www.youtube.com/watch?v=mvxDL7eo9TE

Also you didn’t really lose… you just missed an opportunity. Which sucks… but you didn’t lose the house on it.

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Options contract premiums are treated as short term capital gains if you sold them and they expire worthless or if you buy them back for less than you sold them for. If your put is in the money at expiration and you are therefore assigned shares, your cost basis for your newly purchased shares will be adjusted down by the $50 premium, so $9.50 in your case. You won’t pay any taxes until you sell the shares, and only if you sell for more than $9.50. If you sell for less than $9.50 you will have a loss that can be applied to offset any other gains you have that year.

1 Like
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Google has been throwing up some interesting articles on taxes.

投資臺灣入口網 Invest Taiwan_Business in Taiwan_Introduction of Taiwan Tax System_Individual Income Tax (nat.gov.tw)

and

Taiwan - Individual - Income determination (pwc.com)

Thanks for pointing me in the right direction.

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“Markets can remain irrational longer than you can remain solvent ” is oft quoted and entirely true.

So I don’t play big positions, I don’t invest in companies that are vaporware vendors, I don’t ever go 100% all in, I’m not a YOLO investor. No position is more than 5% of my PF now, and I don’t trade complex options because I still don’t know enough about the trades.

My goal is to earn enough to keep going. I try to learn from my mistakes, and I try to avoid double-guessing myself because the markets can be irrational at times. We’ll see how it goes. If you’re interested, I’ll post back from time to time.

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Ok.

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Not all options carry big risk.

Even if it’s a long term contract?

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100% agree. The most common options strategies like selling covered calls or cash secured puts (on stocks that you would like to own anyway) are very conservative.

I’ve never bought or sold a long term (LEAP) option, but as I understand it, if you hold it for more than one year it does get taxed as long term.
There is also favorable tax treatment for non-equity options (like the SPX) where 60% of the trade is taxed as long term and 40% is taxed as short term, regardless of the holding period. Look up “Section 1256” options for all the details. Professional traders will typically trade options of SPX rather than SPY for this reason, even though SPY just tracks the SPX. I don’t personally trade SPX though because the notional value is 10X that of SPY, one contract is about $420,000 based on today’s SPX price.